Kindle eBooks, Amazon and Business of Licensing: Section 33 Non-Compliance?

Over the years, the copyright law was amended several times to achieve different objectives ranging from inclusion of new works and rights to protecting interests of authors. One of the amendments to Indian copyright law in 1994 related to creating an exclusive business zone for copyright societies, whose objective is to manage works of authors, publishers and owners and facilitate ease of licensing and royalty sharing. The amendment provided in Section 33 of the Copyright Act that only copyright societies can be in the business of granting or issuing licenses. The objective of this limitation to the business of licensing was to protect the interests of authors, enable fair treatment and royalty sharing, and prevent suppression of authors and violation of their rights by regulating entities that license their works. An exception was made in the provision for copyright owners, who were also permitted to license works by themselves. While dealing with a case relating to this exception, the Bombay High Court held that not only copyright owners, even their agents can grant or issue licenses to third parties.

As per the law, only copyright owners and copyright societies can grant and issue licenses and run such a business. However, with development of novel modes and means of making works available, this provision was largely disregarded and is one of the least complied provisions of copyright law in India today. Discussion with respect to compliance of Section 33 came to the forefront in the context of legal actions by and against IPRs (Indian Performing Rights Society), a copyright society, over the last six years, but not much progress has been made so far in enforcing its compliance.

This post focuses on Amazon’s non-compliance with Section 33 with respect to its eBook business in India. Amazon is the largest eBook licensee and licensor in India, and some estimate its market share to be more than ninety (90) percent, and therefore, its non-compliance assumes significance from various perspectives ranging from author rights to Government oversight. I argue in this post that Amazon licenses works from authors and publishers and relicenses those works to customers, and is therefore, in the business of licensing, which is not permitted under Section 33 of the Copyright Act.

Amazon’s Licenses from Authors and Publishers

In India, Amazon Asia Pacific Pvt. Ltd. (Registered in Singapore), runs the Kindle Direct Publishing program (“KDP”) through which it acquires eBook licenses from authors and publishers. Several other Amazon entities are also licensees in the transaction as provided in the KDP terms. All of them together are referred to as “Amazon” for purposes of this post.

Amazon publishes, distributes and sells eBooks of authors and publishers through its Kindle Direct Publishing program. Through the KDP program, Amazon acquires licenses from authors as well as publishers over their eBooks. Several authors directly publish through the program and do not go through traditional publishers. Most of them hold copyright ownership over their books and hold the right to license them to Amazon. Publishers either own copyrights over their books or hold publication licenses. Both authors and publishers have to agree, and are bound by the KDP Terms of Service. These Terms of Service are in the form of a license, which includes grant of rights and royalty payments.

The relevant clause granting rights to Amazon reads as follows:

” 5.5 Grant of Rights. You grant to each Amazon party, throughout the term of this Agreement, a nonexclusive, irrevocable, right and license to print (on-demand and in anticipation of customer demand) and distribute Books, directly and through third-party distributors, in all formats you choose to make available through KDP by all distribution means available. This right includes, without limitation, the right to:

(a) reproduce, index and store Books on one or more computer facilities, and reformat, convert and encode Books;

(b) display, market, transmit, distribute, sell, license and otherwise make available all or any portion of Books through Amazon Properties (as defined below), for customers and prospective customers to download, access, copy and paste, print, annotate and/or view online and offline, including on portable devices;

(c) permit customers to “store” Digital Books that they have purchased from us on servers (“Virtual Storage”) and to access and re-download such Digital Books from Virtual Storage from time to time both during and after the term of this Agreement;

(d) display and distribute (i) your trademarks and logos in the form you provide them to us or within Books (with such modifications as are necessary to optimize their viewing), and (ii) portions of Books, in each case solely for the purposes of marketing, soliciting and selling Books and related Amazon offerings;

(e) use, reproduce, adapt, modify, and distribute, as we determine appropriate, in our sole discretion, any metadata that you provide in connection with Books; and

(f) transmit, reproduce and otherwise use (or cause the reformatting, transmission, reproduction, and/or other use of) Books as mere technological incidents to and for the limited purpose of technically enabling the foregoing (e.g., caching to enable display).

In addition, you agree that we may permit our affiliates and independent contractors, and our affiliates’ independent contractors, to exercise the rights that you grant to us in this Agreement. “Amazon Properties” means any web site, application or online point of presence, on any platform, that is owned or operated by or under license by Amazon or co-branded with Amazon, and any web site, application, device or online point of presence through which any Amazon Properties or products available for sale on them are syndicated, offered, merchandised, advertised or described. You grant us the rights set forth in this Section 5.5 on a worldwide basis; however, if we make available to you a procedure for indicating that you do not have worldwide distribution rights to a Digital Book, then the territory for the sale of that Digital Book will be those territories for which you indicate, through the procedure we provide to you, that you have distribution rights.”

The grant of license includes several rights covering different forms of IP from copyrights to trade marks. The grant of rights under the license extends to all Amazon entities, and under the license Amazon is free to license the works to its partners, contractors, and even third parties.

It is clear and unambiguous from the language of the provision that this is a license agreement. The said certainty is fortified by several other terms including the royalty clause, which reads as follows:

” 5.4 Royalties and Payments.

5.4.1 Royalties. If you are not in breach of your obligations under this Agreement, for each Book sold to a customer through the Program, the Amazon party that made the sale (or whose affiliate made the sale) will pay you the applicable Royalty set forth in the Digital Pricing Page or Print Pricing Page, as applicable, net of refunds, bad debt, and any VAT, sales or other taxes charged to a customer or applied with respect to sales to a customer. If your List Price for a Book is higher than permitted under the Digital Pricing Page or Print Pricing Page, as applicable, we will be entitled to deem it modified so that it is equal to the maximum List Price permitted when calculating Royalties due to you under this Agreement.

…”

In return for the license granted by authors/publishers, Amazon pays them a running royalty based on sales of eBook licenses. If the author/publisher enrols in the KDP Select program, the license grant is exclusive for a given period and the eBook cannot be published elsewhere. Licenses are also acquired by Amazon for other programs such as lending and match book program if the author/publisher opts for them.

Amazon’s Licenses to Customers and Subscribers

Amazon licenses the eBooks it licenses from authors/publishers to customers broadly under two models, single license for a book, or a license to read multiple books from the catalogue. The license for multiple eBooks is a form of a blanket license with permission to read ten eBooks at a particular point of time. Subscription to the Kindle Unlimited license program or Amazon Prime gives customers the license to choose from a large library of eBooks and read a given number of them. Purchasing a license of an eBook gives the customer a license to read the book on Amazon’s devices and applications.

Customers cannot share eBooks they access on the Kindle device or application, and the license granted is limited to use on the said devices. The eBook licenses granted to customers are also limited by time. Even customers, who purchase eBooks individually are given a license to read, but they cannot share the eBooks like hard copies. The rights of Amazon or the author over the eBook are not exhausted on purchase of the eBook license on Amazon.

Simply put, Amazon does not sell eBooks like other products, it licenses them to customers with restrictions for a fee. Amazon is therefore in the business of issuing or granting licenses. The terms of use on the Kindle Store for users/customers confirms this. The relevant provision in the terms of use reads as follows:

“1. Kindle Content

Use of Kindle Content.

Upon your download or access of Kindle Content and payment of any applicable fees (including applicable taxes), the Content Provider grants you a non-exclusive right to view, use, and display such Kindle Content an unlimited number of times (for Subscription Content, only as long as you remain an active member of the underlying membership or subscription program), solely through a Kindle Application or as otherwise permitted as part of the Service, solely on the number of Supported Devices specified in the Kindle Store, and solely for your personal, non-commercial use. Kindle Content is licensed, not sold, to you by the Content Provider. … ”

The provision unambiguously provides that the customer gets a non-exclusive license for use on Kindle devices and/or applications only. If a customer wishes to not use the Kindle device or Amazon’s application, the license to the eBooks purchased or subscribed comes to an end.

Amazon’s Business of Licensing

Amazon acquires licenses from authors/publishers over eBooks and grants/issues licenses to customers. It is clearly in the business of licensing. Like a copyright society, it acquires rights and re-licenses works of hundreds of authors. It is a collective management organisation, which operates outside the scope of Section 33. In other words, Amazon is a defacto copyright society, but is not legally registered as one. Unlike a copyright society, which licenses works of authors and takes a small administrative fee, Amazon takes thirty to sixty five percent of the eBook’s price (license fee) from the author. As stated earlier, Amazon’s share is not subject to regulation or oversight as it is not a copyright society under the law.

Closing Thoughts

It is clear from the foregoing that Amazon is in the business of granting or issuing licenses, and that its business revolves around licensing of literary works. It manages and administers thousands of eBooks licensed to it by hundreds of authors/publishers for a very high fee compared to the administrative fee deducted by copyright societies. The primary objective of copyright societies managing works of authors like IPRS is to protect and promote the interests of authors, and to manage their works for their benefit. However, the objective of a business like Amazon is to profit from works of authors, and though authors are important for its business, the company’s profit motive always supersedes author rights and interests.

Stopping defacto copyright societies and ensuring Section 33 compliance is the Government’s responsibility. The Government grants registration of copyright societies and it has to ensure that no organisation runs the business of licensing without registration. The Copyright Office did not take up a petition bringing Section 33 non-compliance to its attention, and did not forward the same to the Central Government for appropriate action. Unless something changes in the Government’s approach, it seems that defacto copyright societies will continue to function with impunity, and authors will have to either work with whatever terms they impose, or stay out of the system.